Firstquarter inflation below expectations
WELLINGTON:THE consumers price index eked out a smaller gain than expected in the March quarter and may up the ante for an interest rate cut next month.
The CPI rose 0.1% in the March quarter, bringing the annual rate of inflation to 1.5%, down from a 1.9% pace in December, Stats NZ said.
The New Zealand dollar dropped as low as US66.72c from 67.77c immediately before the release. It was recently at 66.95c .
Economists had predicted the CPI rose 0.3% in the three months ended March 31, for an annual increase of 1.7%, according to the median estimate from a poll of economists by Bloomberg. The Reserve Bank had tipped a 0.2% lift and an annual rise of 1.6%.
The central bank has a dual mandate to support maximum sustainable employment and keep annual CPI inflation between 1% and 3% over the medium term, with a focus on the midpoint of 2%.
Inflation has remained stubbornly weak and the March quarter result marks the eighth consecutive quarter it has been below the midpoint.
The bank surprised markets last month when it switched to an overt easing bias and said the most likely direction of the next move in the official cash rate is down from an already recordlow 1.75%.
Yesterday’s data may add to the view the central bank could cut the OCR as early as May.
Inflation was low in the March quarter, largely because of cheaper petrol and international airfares.
The price of petrol fell 7% from the December quarter. Stats NZ noted, however, that while prices were lower in January and February, by the last week of March the petrol pump price was 3.7% higher than the March quarter average. Since then, prices have continued to rise. Marchquarter petrol prices were up 0.7% from a year earlier.
Seasonal falls for international airfares also weighed on inflation. Prices were down 11.8% versus the December quarter. On the year they were down 1%.
The lift in the CPI for the March quarter was due to higher prices for cigarettes, Stats NZ said. An annual tobacco tax increase on January 1 lifted cigarette and tobacco prices 9% in the quarter. On the year, they were up 7.7%. — BusinessDesk